JAKARTA European Union Trade Commissioner Pascal Lamy has offered an optimistic view of the Southeast Asian economy despite increasing diversion of investments to China, saying the region had democracy as one of its assets.

"The fact is that because of its size, because of the consistency of its policy, because of the track record China has in terms of growth in the last 10 years, they have a track record which is attractive, which others may not have," Lamy said.

"Investors are looking at that, but then the next question is so what?

"This region has assets. I mean it has positive assets in terms of democracy for instance, which sometimes makes a decision more difficult than easy. But it has assets," he said, in an interview on Saturday.

China has been getting the lion's share of foreign direct investments into Asia at the expense of Southeast Asia as investors take advantage of the regional giant's potential market of more than one billion people.

Lamy however said much of investment funds diverted from Southeast Asia to China was in fact "local money".

"It's not sucking money out of this region. A lot of this money is local money, including Chinese money, by the way, in this region," he said.

"When you look at $40 billion positive foreign direct investment in China a year, we all know that a part of that is rescinding money," the EU trade chief said.

Southeast Asia's 500 million population made it a viable marketplace for investors, AFP quoted Lamy as saying.

"With developing countries like Vietnam, Cambodia and Laos joining the group in an efficient way, in a positive way, it's a good sign," he said.

"There's no fatality in this. Look at Japan, it was a big history 20 years ago," he said.

He said the ASEAN Free Trade Area (AFTA), which came into force on January 1, had also received stronger support from member countries.

The Association of Southeast Asian Nations (ASEAN) groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

Under the AFTA scheme, six of ASEAN's wealthier members have cut tariffs on most goods traded within the region to between zero and five percent. Newer members Cambodia, Laos, Myanmar and Vietnam have until 2005 to follow suit.

There have also been proposals for an asean free trade accord with China -- a potential combined market of 1.7 billion people.

Philippines President Gloria Arroyo and Singapore Trade Minister George Yeo have both called on ASEAN to hasten economic integration if it wants to compete with China, which is enjoying rapid growth.

Speaking in Singapore on Friday, Lamy urged ASEAN to move beyond reducing tariffs and to align investment rules with global standards if it was to compete for foreign investments.

He said greater competition from China after its entry into the World Trade Organization should spur Southeast Asian nations to open up their markets further.

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